Institutional Shareholder Services, an influential de facto corporate watchdog, is advising stockholders to vote no on executive compensation for Netflix, Comcast and Google parent Alphabet at annual meetings this week and next, while slamming the pay criteria at Facebook.
ISS is one of a handful of firms that recommend how shareholders vote on key issues raised at annual meeting based on wide-ranging research. (It does this ahead of 4,400 meeting annually in 115 markets.) The events, which are going mostly virtual instead of in-person in 2020 for the first time thanks to the coronavirus pandemic, are stockholders’ one chance to weigh in on pay, election of directors and other proposals, including ones they submit themselves. A flurry of recent ISS reports reviewed by Deadline shows ongoing concern at outsized or unusual pay packages in media and tech.
Facebook’s annual meeting is Wednesday. Executive compensation for its top execs continues “to lack objective performance criteria,” ISS said. It also found the cost of security for chairman and CEO Mark Zuckerberg ($20.5 million in 2019) strangely high.
At Netflix, which is meeting June 4, ISS called the streaming giant’s self-described “unconventional” governance philosophy increasingly out of step with the S&P 500 Index (meaning most other companies). It recommends voting against executive compensation and withholding votes for CEO Reed Hastings and chief content officer Ted Sarandos as directors to express dissatisfaction “with the board’s lack of meaningful action to address critical governance issues.”
Last year, a majority of shareholders voted against executive pay and withheld support for Netflix’s slate of director nominees (Timothy Haley, Leslie Kilgore, Ann Mather and Susan Rice) for just that reason. The four were running unopposed, so the vote was largely symbolic.
So-called say-on-pay votes are non-binding, but companies do care about them. Netflix responded to critics and clarified its pay policy in its latest proxy statement earlier this year, but insufficiently, according to ISS, which said the streaming giant utilizes “a problematic pay structure that includes outsized base salaries and the use of fully-vested stock options.”
Nearly 90% of stockholders also voted last year for a shareholder proposal requesting the board adopt a simple majority vote standard (versus a “supermajority” of 66.67% to approve most measures). It was not adopted.
Netflix, citing the rapid evolution of technology and changing media landscape, believes its governance structure has helped the company continually adjust its service to meet the dynamic needs and desires of consumers, says ISS. Arguably, ISS notes, the board is keen on not letting any outside forces disrupt the momentum – Netflix was the top-performing S&P 500 stock in the prior decade. “Having said that, allowing a company to rest on its laurels is not a risk shareholders are willing to take, particularly in the media industry,” ISS said.
It noted that activist shareholders don’t typically target highly successful companies like Netflix but, “Ironically … it is precisely the board’s lack of responsiveness to shareholders, rather than any decision on strategy or capital allocation, that arguably offers activists their best chance of finding an issue with which to appeal to the mainstream asset managers who represent a majority of the shareholder base.”
As Deadline has reported, top executives at a number of companies from Comcast, Disney and Fox to Live Nation, iHeartMedia and AMC Entertainment have agreed to forgo or slash pay this year as the coronavirus pandemic pounded the economy and led to mass furloughs and skyrocketing unemployment. But its far from clear if the moves will result in any sort of structural shift in how media and entertainment boards reward their lead players.
Turning the spotlight on Comcast, ISS took issue with former NBCUniversal chief Steve Burke’s 2019 package of $43 million last year, more than Comcast CEO Brian Roberts. “In terms of overall compensation, having an NEO compensated at or above its CEO can be costly to shareholders,” ISS said (NEO stands for “named executive officer”).
Nor was ISS enthusiastic that one non-employee Comcast director received total compensation of $672,523 for 2019 — considered to be “an outlier based on sector data.” Comcast’s annual meeting is June 3.
At Facebook, ISS took issue with the overly broad priorities for determining executive compensation that include: making progress on the major social issues facing the Internet and our company; building new experiences that meaningfully improve people’s lives today and set the stage for even bigger improvements in the future; continuing to expand by supporting the millions of businesses that rely on its services to grow and create jobs; and communicating more transparently about what Facebook is doing and the role its services play in the world.
“As in previous years, these vague metrics had no specific weightings and no quantified targets or goals, and performance was determined based on the compensation committee’s discretion,” ISS noted.
Say-on-pay votes must be at least every three years. Facebook’s last one was in 2019 and its next one is scheduled for 2022, so it won’t come up at tomorrow’s annual meeting. Shareholder proposals on the ballot – supported by ISS – ask that the board adopt practices to improve board accountability, to require an independent board chair, and to adopt of a majority vote requirement for the election of directors. ISS also recommends approving a proposal requiring Facebook to put out a risk report on political advertising – “because the company faces significant controversies and appears to be lagging its peers in terms of implementing reasonable restrictions on political advertisements.”
As for Alphabet, ISS says simply that the Google parent’s compensation committee “has demonstrated poor stewardship of pay programs as evidenced by recurring concerns of outsized awards that are not sufficiently performance-based.” It noted that the company granted new CEO Sundar Pichai awards totaling nearly $250 million that are majority time-based and called the estimated cost of the company’s 2012 Stock Plan “excessive.” Its annual meeting is June 3.
ISS is cautiously OK with pay at Amazon but does back a shareholder proposal asking for information on how the company manages human rights-related concerns from facial recognition technology to worker and supply chain issues. The Jeff Bezos-led company’s annual meeting is also Wednesday.